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A study of the capital structure of Taiwanese firms investing in China

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  • Yi-Chein Chiang
  • Jing-Syue Lin

Abstract

We use the panel threshold regression model to examine the capital structure decision of Taiwanese firms investing in China for the period 2000 to 2006. Results of the entire sample reveal that a firm's debt ratio decreases as foreign direct investments (FDIs) in China increase when firms have low FDIs but becomes insignificant when firms have high FDIs in China. When we examine Taiwanese firms having FDIs in China and in other developed countries, their debt ratios increase as FDIs in China increase. In contrast, their debt ratios decline when Taiwanese firms with FDIs in China and in other developing countries are considered. Our results imply that the capital structure of Taiwanese firms depends on the overall portfolio risk of their investments.

Suggested Citation

  • Yi-Chein Chiang & Jing-Syue Lin, 2010. "A study of the capital structure of Taiwanese firms investing in China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 8(2), pages 185-201.
  • Handle: RePEc:taf:jocebs:v:8:y:2010:i:2:p:185-201
    DOI: 10.1080/14765281003750231
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